By David Harrison 

More than two years after the Federal Reserve began raising short-term interest rates, consumers are starting to see the effects in their borrowing costs.

Rates on credits cards, mortgages and car loans are among those that have edged higher, though the increases have been minimal. And in the cases of home and auto loans, the new levels are still well below where they were before the recession.

The upward movement, however, is a sign that the economic expansion is well anchored, said Amy Crews Cutts, chief economist at Equifax. "We're fully in recovery now," she said.

It often takes a while for Fed rate increases to make their way through to the rates that household borrowers are paying, she said. When the Fed starts raising rates, lenders continue to hold down the rates they charge consumers to avoid losing business.

Once the recovery is better established, they start nudging up rates on consumer loans, as is happening now, Ms. Cutts said.

"The way I look at monetary policy is that it is a very large, blunt instrument with a very long time of effect," she said.

As of Thursday, the average 30-year mortgage rate was 4.44%, the highest since the Fed began raising its benchmark interest rate in December 2015, according to data from Freddie Mac.

As of March 14, rates on five-year new-car loans had inched up to 4.46% according to Bankrate.com, a personal finance site.

The average interest rate on credit cards also has been climbing, reaching 16.84% last week, up from 16.28% a year ago, according to Bankrate.com.

Households also have started to earn slightly higher rates on their savings. The average rate on one-year certificates of deposit rose to 0.49% last week, the highest in seven years, according to Bankrate.com.

The rates could climb higher after Wednesday, when the Fed is likely to announce plans to raise its benchmark federal-funds rate by a quarter percentage point to a range between 1.50% and 1.75%.

The higher consumer rates come as the economy shows signs of momentum, with booming job growth and indications that wages could be headed higher. New tax cuts and an increase in federal government spending also could give the economy a boost, at least in the next year or two.

Fed officials say they expect to see inflation move up closer to their 2% target this year.

Fed officials have raised rates five times since 2015 in quarter-point moves. Officials in December penciled in three rate increases this year, but recently some have said four moves would be appropriate as the economy strengthens.

Mortgage lenders say they have been busy recently as Americans seek to lock in their interest rates before borrowing costs rise more.

"Historically what I've seen is when there are signs of increasing rates, the consumer tends to get off the fence," said Paul Diamond, chief executive of Diamond Residential Mortgage Corp., based in Lake Forest, Ill.

Write to David Harrison at david.harrison@wsj.com

(END) Dow Jones Newswires

March 21, 2018 06:14 ET (10:14 GMT)

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